Is The Auto Industry About to Be Run Over [By Its Own Cars]?

Alarm bells have been ringing for several years now. While the auto industry was preoccupied with recovering from the Great Recession and basking in 7 years of strong growth, rumors of cars that could communicate with each other and even drive themselves began to surface. Those rumors have now become a reality. Combine that with powerful demographic and socio-economic forces and the auto industry is now facing a full on assault from established tech companies, startups and most worrisome of all: car buyers themselves. It turns out, that given the alternative, (which they previously didn’t have), many consumers would rather not own/lease a vehicle and would prefer the option to share* vehicles.

Fortunately, some OEMs have recognized this seismic shift and have begun to take action.

Facing stiff competition from companies like Zipcar (now part of Avis) and CarShare ( Enterprise), manufacturers such as GM, BMW and Daimler have launched their own car sharing offerings. Some recent examples include:

Mobility represents a completely new (and potentially lucrative) business model for manufacturers as dealerships transform from retail locations to mobility hubs. Dealers could offer a variety of options, from acting as a mobility solutions provider, to offering car sharing as an aftersale option. For example, car buyers could purchase a commuter vehicle with the ability to share an on demand SUV/Crossover for extended trips. Or dealers could offer the shared use of a sports car to minivan purchasers. Who wouldn’t jump at that?

As the scope of offerings at the dealership expands, new interfaces will be essential to support these initiatives. This is where the challenge lies. While OEMs should be applauded for their willingness to accept the mobility challenge; developing, testing, certifying and rolling out new interfaces to support these business changes could take several years.

Looking at the velocity of growth happening within the mobility sphere, manufacturers do not have several years, and the OEMs risk being marginalized, despite their best intentions. Right now, car sharing in North America is growing at 34% annually (9x the predicted annual vehicle sales growth) and worldwide, a ZipCar is reserved every six seconds. That would be 5,256,000 reservations per year that did not go to automakers. If this sounds like a race against the clock, it is. Once a consumer has found a solution that meets their needs, OEMs would be in the unenviable position of getting consumers to switch to their offerings. This would be extremely costly and time consuming, with no guarantee of success.

What Will It Take?

Nothing unites competitors like a common foe, and automotive is facing challenges from several common foes right now, but mobility may be the most pressing challenge, so automakers should work together to capture as much of the mobility market as possible.

Remember, competing car mobility ventures have been built from the ground up, with the latest technology, and are not constrained by the legacy systems that are common in automotive. This gives new mobility providers the ability to rapidly test and implement new offerings, greatly accelerating their current advantage. To counteract that, automotive needs a plan, one that could begin with these steps:

1.Develop interfaces to support mobility.

As many OEMs already use the STAR standards, this could be done collaboratively. STAR could form a committee to fastrack the creation of the necessary data standards to support mobility initiatives. These would be made available to STAR members who could then further develop the specifications to their exact needs.

Integration automation replaces the disjointed and error prone development, testing and certification of new mobility interfaces with a rapid and seamless end to end process. Using process automation would be the fastest path to deploying mobility interfaces, and would be essential for keeping up with competitors initiatives.

3.Engage DSPs early in the process to have them “pave the way” for the new interfaces.

DSPs are critical to connecting the retail locations with the OEM initiatives. Early participation between the OEMs, dealers and Dealer System Providers (DSPs) would significantly streamline the development and deployment of mobility interfaces.

4.Invest in the necessary technology to ensure that the new interfaces can support high volume, real time communication, as well as connectivity to mobile devices.

Much of the core IT infrastructure of the OEM/Dealer network is based on technology developed before the era of Big Data, mobile devices and in some cases, the infrastructure pre-dates the internet. New hardware will be needed to meet the needs of the rapidly growing and evolving mobility sphere. This could be done in parallel with the above steps, but should not be used as a reason to delay the process.

What’s At Stake?

Disruption is now taking place in many industries, but none is being as rapidly and massively impacted as automotive. For over 100 years the very foundation of automotive has rested upon the sale of vehicles to the consumer via independent retailers. Mobility will completely and irrevocably change that. Unless rapid and decisive steps are taken right now, the auto industry is facing:

“There will be separation between companies in a way we haven't seen before," "If we get it right, we'll be a much higher-margin business. ... If we get it wrong, we'll be irrelevant.”

Let’s hope the industry gets it right, because we may not get a second chance.

*Note: There is an important distinction between car sharing and ride sharing. Car sharing ( Zipcar, GM’s Maven, etc.) is where a vehicle is owned by a company that offers a flexible use system, and can be shared amongst a large pool of potential users. In a way, it is a hybrid between car ownership and car rental. A variation of this is peer-to-peer car sharing, where a person allows others to use their personal vehicle via a technology enabled network (app/website). Car sharing is less constrained by distances and the nature of the trips taken.

Ride sharing (Uber, Lyft) leverages on demand technology to allow users to request a vehicle to take them from point A to Point B on short notice. Ride sharing is more viable in high density areas, (imagine telling your Uber driver that you want to go to the Grand Canyon). Currently, these vehicles are primarily operated by human drivers, but self-driving vehicles are already become more widespread.